Black Banks Shut Out of New Federal Tax Credit Program

Minority-owned banks are claiming that the federal government has shut them out of tax credits intended to spur economic development in under-served communities. They are referring to last month’s distribution of funds by the Community Development Financial Institutions (CDFI) Fund, an arm of the Treasury Department.

CDFI issued $3.5 billion in New Markets Tax Credit allocation to 76 entities across the country to spur economic development. However, no funds were awarded to the nation’s minority banks, despite those institutions claiming the longest track records of deploying capital in the nation’s most under-served areas.

The NMTC Program is designed to spur economic development in distressed communities across the U.S. The program provides a tax credit to investors who invest in projects or small businesses in those communities by funneling their investments through the recipients of tax credit allocation.

According to the CDFI Fund’s own Award Book, only six awards (less than 8%) went to minority controlled entities of any kind, and those groups received only $165 million, under 5% of the total dollar amount of allocation. “The absence of a single minority bank raises much concern,” said Michael Grant, President of the National Bankers Association. “In 2009, the General Accounting Office issued a report detailing the disparity in NMTC awards to minority entities. The numbers have actually gotten worse, not better,” he continued.

A 2009 study by the Government Accountability Office indicated that only about 9% of minority entities were successful when applying for NMTCs, while non-minority entities had three times the success rate, winning 27% of the time. According to GAO, although the program is highly competitive, minority entities have less than a one in three chance of any other type of entity to receive an award. Minority banks have had even lower success rates than minority entities overall.